##### 



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q

þ
    
    Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 2003o
    
    Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to ____________


Commission file number: 000-30805

WGNB CORP.




(Exact name of registrant as specified in its charter)


Georgia
    
    58-1640130(State of Incorporation)
    
    (I.R.S. Employer Identification No.)


201 Maple Street
P.O. Box 280
Carrollton, Georgia 30112




(Address of principal executive offices)


(770) 832-3557




(Registrants telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past
90 days. Yes þ  No o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange
Act). Yes o  No þ

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date:

Class
    
    Outstanding at November 4, 2003Common Stock, $1.25 par value
    
    3,306,452






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##### 



WGNB CORP.

INDEX TO FORM 10-Q

Item Numberin Form 10-Q
    
    Description
    
    PagePart One
    
    Financial InformationItem 1.
    
    Financial Statements
    
    1Consolidated Balance Sheets at September 30, 2003 and December
31, 2002.
    
    2Consolidated Statements of Earnings for Three Months Ended
September 30, 2003 and September 30,
2002.
    
    3Consolidated Statements of Comprehensive Income for Three
Months Ended September 30, 2003 and September 30,
2002.
    
    4Consolidated Statements of Earnings for Nine Months Ended
September 30, 2003 and September 30, 2002.
    
    5Consolidated Statements of Comprehensive Income for Nine
Months Ended September 30, 2003 and September 30, 2002.
    
    6Consolidated Statements of Cash Flows for Nine Months Ended
September 30, 2003 and September 30, 2002.
    
    7Notes to Consolidated Financial Statements
    
    9Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    12Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    16Item 4.
    
    Disclosure Controls and Procedures
    
    16Part Two
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    16Item 2.
    
    Changes in Securities and Use of Proceeds
    
    16Item 3.
    
    Defaults Upon Senior Securities
    
    17Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    17Item 5.
    
    Other Information
    
    17Item 6.
    
    Exhibits and Reports on Form 8-K
    
    17Signatures
    
    18






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##### 



Part I  Financial Information

Item 1. Financial Statements

The unaudited financial statements of WGNB Corp. (the Company) are set
forth on the following pages. All adjustments have been made which, in the
opinion of management, are necessary in order to make the financial statements
not misleading.

1



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##### 



WGNB CORP.
Consolidated Balance Sheet

September 30, 2003

For the Period EndedSeptember 30, 2003
    
    December 31, 2002(unaudited)
    
    (audited)AssetsCash and due from banks, including reserve requirements
of $100,000
    
    $
    15,984,229
    
    
    $
    16,963,822Federal funds sold
    
    
    4,956,673
    
    
    
    30,703,388Cash and cash equivalents
    
    
    20,940,902
    
    
    
    47,667,210Securities available for sale
    
    
    51,568,401
    
    
    
    52,131,793Securities held to maturity
    
    
    4,000,000
    
    
    
    3,500,000Loans, net
    
    
    288,774,547
    
    
    
    269,212,860Premises and equipment, net
    
    
    6,870,160
    
    
    
    5,959,767Accrued interest receivable
    
    
    1,976,759
    
    
    
    2,027,228Other assets
    
    
    5,175,363
    
    
    
    4,622,304$
    379,306,132
    
    
    $
    385,121,162Liabilities
and Stockholders EquityDeposits:Demand
    
    $
    39,360,434
    
    
    $
    38,039,880Interest bearing demand
    
    
    116,028,144
    
    
    
    123,831,459Savings
    
    
    10,931,197
    
    
    
    9,031,153Time
    
    
    86,672,710
    
    
    
    86,680,351Time, over $100,000
    
    
    36,358,039
    
    
    
    41,143,025Total deposits
    
    
    289,350,524
    
    
    
    298,725,868Federal Home Loan Bank advances
    
    
    45,000,000
    
    
    
    45,000,000Accrued interest payable
    
    
    1,151,781
    
    
    
    1,210,424Other liabilities
    
    
    2,733,234
    
    
    
    1,664,919Total liabilities
    
    
    338,235,539
    
    
    
    346,601,211Stockholders equity:Common stock, $1.25 par value, 10,000,000 shares authorized;
3,306,452 and 3,306,733 shares issued and outstanding
    
    
    4,133,065
    
    
    
    4,133,416Additional paid-in capital
    
    
    5,287,947
    
    
    
    5,367,172Retained earnings
    
    
    30,379,531
    
    
    
    27,709,213Accumulated comprehensive income
    
    
    1,270,050
    
    
    
    1,310,150Total stockholders equity
    
    
    41,070,593
    
    
    
    38,519,951$
    379,306,132
    
    
    $
    385,121,162


See accompanying notes to consolidated financial statements.

2



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##### 



WGNB CORP.

Consolidated Statements of Earnings


For the Three Months Ended September 30, 2003 and 2002
(unaudited)

For the Three Months EndedSeptember 30, 2003
    
    September 30, 2002Interest income:Interest and fees on loans
    
    $
    5,198,755
    
    
    $
    5,318,718Interest on federal funds sold
    
    
    38,055
    
    
    
    24,461Interest on investment securities:U.S. Government agencies
    
    
    257,238
    
    
    
    375,700State, county and municipal
    
    
    328,468
    
    
    
    277,606Other
    
    
    130,649
    
    
    
    115,366Total interest income
    
    
    5,953,165
    
    
    
    6,111,851Interest expense:Interest on deposits:Demand
    
    
    204,987
    
    
    
    381,217Savings
    
    
    10,120
    
    
    
    25,506Time
    
    
    993,120
    
    
    
    1,129,081Interest on FHLB and other borrowings
    
    
    608,874
    
    
    
    519,284Total interest expense
    
    
    1,817,101
    
    
    
    2,055,088Net interest income
    
    
    4,136,064
    
    
    
    4,056,763Provision for loan losses
    
    
    75,000
    
    
    
    75,000Net interest income after
provision for loan losses
    
    
    4,061,064
    
    
    
    3,981,763Other income:Service charges on deposit accounts
    
    
    961,001
    
    
    
    815,335Mortgage origination fees
    
    
    241,550
    
    
    
    269,552Gain on settlement of interest rate swap
    
    
    
    
    
    
    252,950Miscellaneous
    
    
    146,226
    
    
    
    221,669Total other income
    
    
    1,348,777
    
    
    
    1,559,506Other expenses:Salaries and employee benefits
    
    
    1,974,529
    
    
    
    1,831,836Occupancy
    
    
    491,368
    
    
    
    415,003Other operating
    
    
    782,412
    
    
    
    755,308Total other expenses
    
    
    3,248,309
    
    
    
    3,002,147Earnings before income taxes
    
    
    2,161,532
    
    
    
    2,539,122Income taxes
    
    
    722,039
    
    
    
    872,981Net earnings
    
    $
    1,439,493
    
    
    $
    1,666,141Basic earnings per share
    
    $
    0.44
    
    
    $
    0.50Diluted net earnings per share
    
    $
    0.43
    
    
    $
    0.50Dividends declared per share
    
    $
    0.17
    
    
    $
    0.15


See accompanying notes to consolidated financial statements.

3



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##### 



WGNB CORP.
Consolidated Statements of Comprehensive Income

For the Three Months Ended September 30, 2003 and 2002
(unaudited)

For the Three Months EndedSeptember 30, 2003
    
    September 30, 2002Net earnings
    
    $
    1,439,493
    
    
    $
    1,666,141Other comprehensive income, net of tax:Unrealized gains on investment
securities available for sale:Unrealized (losses) gains arising during the period
    
    
    (1,105,533
    )
    
    
    669,995Associated benefit (taxes)
    
    
    375,881
    
    
    
    (227,785
    )Other comprehensive (loss) income
    
    
    (729,652
    )
    
    
    442,170Comprehensive income
    
    $
    709,841
    
    
    $
    2,108,311


See accompanying notes to consolidated financial statements.

4



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##### 



WGNB CORP.
Consolidated Statements of Earnings
For the Nine Months Ended September 30, 2003 and 2002
(unaudited)

For the Nine Months EndedSeptember 30, 2003
    
    September 30, 2002Interest income:Interest and fees on loans
    
    $
    15,393,736
    
    
    $
    15,633,769Interest on federal funds sold
    
    
    161,598
    
    
    
    169,401Interest on investment securities:U.S. Government agencies
    
    
    825,612
    
    
    
    1,231,767State, county and municipal
    
    
    989,713
    
    
    
    877,317Other
    
    
    394,220
    
    
    
    323,743Total interest income
    
    
    17,764,879
    
    
    
    18,235,997Interest expense:Interest on deposits:Demand
    
    
    711,627
    
    
    
    1,152,626Savings
    
    
    43,308
    
    
    
    73,127Time
    
    
    3,163,087
    
    
    
    3,908,725Interest on FHLB and other borrowings
    
    
    1,826,624
    
    
    
    1,436,720Total interest expense
    
    
    5,744,646
    
    
    
    6,571,198Net interest income
    
    
    12,020,233
    
    
    
    11,664,799Provision for loan losses
    
    
    225,000
    
    
    
    225,000Net interest income after
provision for loan losses
    
    
    11,795,233
    
    
    
    11,439,799Other income:Service charges on deposit accounts
    
    
    2,693,633
    
    
    
    2,321,072Mortgage origination fees
    
    
    751,002
    
    
    
    693,415Gain on sale of securities available for sale
    
    
    
    
    
    
    8,566Gain on settlement of interest rate swap
    
    
    
    
    
    
    252,950Miscellaneous
    
    
    739,373
    
    
    
    636,983Total other income
    
    
    4,184,008
    
    
    
    3,912,986Other expenses:Salaries and employee benefits
    
    
    5,758,729
    
    
    
    5,376,152Occupancy
    
    
    1,340,004
    
    
    
    1,251,042Other operating
    
    
    2,556,546
    
    
    
    2,355,925Total other expenses
    
    
    9,655,279
    
    
    
    8,983,119Earnings before income taxes
    
    
    6,323,962
    
    
    
    6,369,666Income taxes
    
    
    2,015,453
    
    
    
    2,167,293Net earnings
    
    $
    4,308,509
    
    
    $
    4,202,373Net earnings per share
    
    $
    1.30
    
    
    $
    1.30Diluted net earnings per share
    
    $
    1.29
    
    
    $
    1.29Dividends declared per share
    
    $
    0.4950
    
    
    $
    .4425


See accompanying notes to consolidated financial statements.

5



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##### 



WGNB CORP.

Consolidated Statements of Comprehensive Income


For the Nine Months Ended September 30, 2003 and 2002
(unaudited)

For the Nine Months EndedSeptember 30, 2003
    
    September 30, 2002Net earnings
    
    $
    4,308,509
    
    
    $
    4,202,373Other comprehensive income, net of tax:Unrealized gains on investment
securities available for sale:Unrealized (losses) gains arising during the period
    
    
    (60,756
    )
    
    
    1,622,364Associated benefit (taxes)
    
    
    20,656
    
    
    
    (551,604
    )Reclassification adjustment for gains
    
    
    
    
    
    
    (8,566
    )Associated taxes
    
    
    
    
    
    
    2,827Other comprehensive (loss) income
    
    
    (40,100
    )
    
    
    1,065,021Comprehensive income
    
    $
    4,268,409
    
    
    $
    5,267,394


See accompanying notes to consolidated financial statements.

6



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##### 



WGNB CORP.
Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2003 and 2002
(unaudited)

For the Nine Months EndedSeptember 30, 2003
    
    September 30, 2002Cash flows from operating activities:Net earnings
    
    $
    4,308,509
    
    
    $
    4,202,373Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation, amortization and accretion
    
    
    795,976
    
    
    
    777,247Provision for loan losses
    
    
    225,000
    
    
    
    225,000Benefit (provision) for deferred income taxes
    
    
    252,606
    
    
    
    (313,901
    )Gain on sale of securities available for sale
    
    
    
    
    
    
    (8,566
    )Loss on sale of other real estate
    
    
    
    
    
    
    7,971Loss on sale of premises and equipment
    
    
    5,282
    
    
    
    6,028Change in:Other assets
    
    
    70,844
    
    
    
    96,108Other liabilities
    
    
    734,652
    
    
    
    (225,641
    )Net cash provided by operating activities
    
    
    6,392,869
    
    
    
    4,766,619Cash flows from investing activities:Proceeds from sales of securities available for sale
    
    
    
    
    
    
    6,498,385Proceeds from maturities of securities available for sale
    
    
    13,708,945
    
    
    
    9,876,210Purchases of securities available for sale
    
    
    (13,870,285
    )
    
    
    (13,586,756
    )Purchase of securities held to maturity
    
    
    
    
    
    
    (1,000,000
    )Net change in loans
    
    
    (20,339,465
    )
    
    
    (20,263,762
    )Proceeds from sale of premises and equipment
    
    
    1,920
    
    
    
    17,048Purchases of premises and equipment
    
    
    (1,549,595
    )
    
    
    (363,630
    )Improvements to other real estate
    
    
    
    
    
    
    (11,843
    )Proceeds from sales of other real estate
    
    
    
    
    
    
    157,730Net cash used by investing activities
    
    
    (22,048,480
    )
    
    
    (18,676,618
    )Cash flows from financing activities:Net change in deposits
    
    
    (9,375,344
    )
    
    
    (7,076,867
    )Federal Home loan Bank advances
    
    
    
    
    
    
    10,0000,000Repayment of other borrowings
    
    
    
    
    
    
    (515,000
    )Dividends paid
    
    
    (1,586,866
    )
    
    
    (1,387,236
    )Issuance of common stock, net
    
    
    
    
    
    
    4,766,454Exercise of stock options
    
    
    46,045
    
    
    
    65,282Retirement of common stock
    
    
    (154,532
    )
    
    
    (65,282
    )Net cash (used) provided by financing activities
    
    
    (11,070,697
    )
    
    
    5,787,351Change in cash and cash equivalents
    
    
    (26,726,308
    )
    
    
    (8,122,648
    )Cash and cash equivalents at beginning of period
    
    
    47,667,210
    
    
    
    30,998,895Cash and cash equivalents at end of period
    
    $
    20,940,902
    
    
    $
    22,876,247


See accompanying notes to consolidated financial statements.

7



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##### 



WGNB CORP.
Consolidated Statements of Cash Flows, continued

For the Nine Months Ended September 30, 2003 and 2002
(unaudited)

For the Nine Months EndedSeptember 30, 2003
    
    September 30, 2002Supplemental disclosure of cash flow information:Cash paid during the quarter for:Interest
    
    $
    5,803,289
    
    
    $
    7,263,465Income taxes
    
    
    1,812,000
    
    
    
    2,477,950Non-cash investing and financing activities:Transfer of loans to other real estate
    
    
    552,778
    
    
    
    241,957Change in unrealized gains on
securities available for sale, net of tax
    
    
    40,100
    
    
    
    1,065,021Change in dividends payable
    
    
    51,325
    
    
    
    46,996Satisfaction of other liability with issuance
of common stock
    
    
    28,911
    
    
    
    29,367


See accompanying notes to consolidated financial statements.

8



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##### 



WGNB Corp.
Notes to Consolidated Financial Statements

September 30, 2003
(unaudited)

(1)       Basis of Presentation

The consolidated financial statements include the accounts of WGNB Corp.
(the Company) and its wholly-owned subsidiary, West Georgia National Bank
(the Bank). All significant inter-company accounts have been eliminated in
consolidation. In some cases, certain prior period amounts have been
reclassified to conform with current year presentation.

The accompanying unaudited interim consolidated financial statements reflect
all adjustments which, in the opinion of management, are necessary to present
fairly the Companys financial position as of September 30, 2003, and the
results of its operations and its cash flows for the nine-month period then
ended. All such adjustments are normal and recurring in nature. The
financial statements included herein should be read in conjunction with
consolidated financial statements and the related notes and the report of
independent accountants included in the Companys filing on Form 10-K which
included the results of operations for the years ended December 31, 2002,
2001 and 2000.

Critical
Accounting Policies

The Companys accounting policies are fundamental to understanding
managements discussion and analysis of results of operations and financial
condition. Some of the Companys accounting policies require significant
judgment regarding valuation of assets and liabilities and/or significant
interpretation of specific accounting guidance. A description of the
Companys significant accounting policies can be found in Note 1 of the Notes
to Consolidated Financial Statements in the Companys Annual Report to
Shareholders for the year ended December 31, 2002.

Many of the Companys assets and liabilities are recorded using various
valuation techniques that require significant judgment as to recoverability.
The collectibility of loans is reflected through the Companys estimate of
the allowance for loan losses. The Company performs periodic detailed
reviews of its loan portfolio in order to assess adequacy of the allowance
for loan losses in light of anticipated risks and loan losses. In addition,
investment securities available for sale are reflected at their estimated
fair value in the consolidated financial statements. Such amounts are based
on either quoted market prices or estimated values derived by using dealer
quotes and market comparisons.

Stock
Compensation Plans

SFAS No. 123, Accounting for Stock-Based Compensation, encourages all
entities to adopt a fair value based method of accounting for employee stock
compensation plans, whereby compensation cost is measured at the grant date
based on the value of the award and is recognized over the service period,
which is usually the vesting period. However, it also allows an entity to
continue to measure compensation cost for those plans using the intrinsic
value based method of accounting prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, whereby
compensation cost is the excess, if any, of the quoted market price of the
stock at the grant date (or other measurement date) over the amount an
employee must pay to acquire the stock. Stock options issued under the
Companys stock option plan have no intrinsic value at the grant date, and
under Opinion No. 25 no compensation cost is recognized for them. The
Company has elected to continue with the accounting methodology in Opinion
No. 25 and, as a result, has provided proforma disclosures of net income and
earnings per share and other disclosures, as if the fair value based method
of accounting had been applied. Had compensation cost for the plan been
determined based upon the fair value of the options at the grant dates, the
Companys net earnings per share for the year to date and quarters ended
September 30, 2003 and 2002 would have been reduced to the proforma amounts
indicated below:

9



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##### 



WGNB Corp.
Notes to Consolidated Financial Statements

September 30, 2003
(unaudited)

(1)       Basis
of Presentation, continued

For the three months ended September 30,2003
    
    2002Net earnings
    
    As reported
Proforma
    
    $
$
    1,439,493
1,439,493
    
    
    
    1,666,141
1,666,141Net earnings per share
    
    As reported
Proforma
    
    $
$
    0.44
0.44
    
    
    
    0.50
0.50Diluted earnings per share
    
    As reported
Proforma
    
    $
$
    0.43
0.43
    
    
    
    0.50
0.50


For the nine months ended September 30,2003
    
    2002Net earnings
    
    As reported
Proforma
    
    $
$
    4,308,509
4,158,795
    
    
    
    4,202,373
4,123,602Net earnings per share
    
    As reported
Proforma
    
    $
$
    1.30
1.26
    
    
    
    1.30
1.28Diluted earnings per share
    
    As reported
Proforma
    
    $
$
    1.29
1.24
    
    
    
    1.29
1.27


The fair value of each option is estimated on the date of the grant using the
Black-Scholes Model. The weighted average estimated fair value of each
option granted in 2003 and 2002 was $5.71 and $6.91, respectively. The
following weighted average assumptions were used for grants in 2003 and 2002,
respectively: dividend yield of 2.41 percent and 2.40 percent, risk free
interest rates of 3.90 percent and 4.14 percent, respectively, and an
expected life of 10 years. For disclosure purposes, the Company immediately
recognized the expense associated with the option grants assuming that all
awards will vest. The compensation expense included in the proforma results
was determined based on the fair value of the option at the time of grant
multiplied by the number of options granted net of tax effect. During the
first quarter of 2003, 39,735 options were granted at an exercise price of
$24.99 which compares to 17,272 options granted at an exercise price of
$24.00 in the first quarter of 2002. No additional options were granted in
2003 or 2002.

(2)       Net Earnings Per Share

Basic earnings per share is based on the weighted average number of common
shares outstanding during the period while the effects of potential common
shares outstanding during the period are included in diluted earnings per
share. The average market price during the year is used to compute
equivalent shares.

Reconciliation of the amounts used in the computation of both basic earnings
per share and diluted earnings per share for the periods ended September
30, 2003 and September 30, 2002 are as follows:

10



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##### 



WGNB Corp.
Notes to Consolidated Financial Statements

September 30, 2003
(unaudited)

(2)       Net Earnings Per Share, continued

For the quarter ended September 30, 2003EarningsNet Earnings
    
    Common Shares
    
    per ShareBasic earnings per share
    
    $
    1,439,493
    
    
    
    3,307,827
    
    
    $
    0.44Effect of dilutive securities  Stock Options
    
    
    
    
    
    
    44,237
    
    
    
    (0.01
    )Diluted earnings per share
    
    $
    1,439,493
    
    
    
    3,352,064
    
    
    $
    0.43


For the quarter ended September 30, 2002EarningsNet Earnings
    
    Common Shares
    
    per ShareBasic earnings per share
    
    $
    1,666,141
    
    
    
    3,306,733
    
    
    $
    0.50Effect of dilutive securities  Stock Options
    
    
    
    
    
    
    25,970
    
    
    
    Diluted earnings per share
    
    $
    1,666,141
    
    
    
    3,332,703
    
    
    $
    0.50


For the nine months ended September 30, 2003EarningsNet Earnings
    
    Common Shares
    
    per ShareBasic earnings per share
    
    $
    4,308,509
    
    
    
    3,308,637
    
    
    $
    1.30Effect of dilutive securities  Stock Options
    
    
    
    
    
    
    44,237
    
    
    
    (0.01
    )Diluted earnings per share
    
    $
    4,308,509
    
    
    
    3,352,874
    
    
    $
    1.29


For the nine months ended September 30, 2002EarningsNet Earnings
    
    Common Shares
    
    per ShareBasic earnings per share
    
    $
    4,202,373
    
    
    
    3,223,483
    
    
    $
    1.30Effect of dilutive securities  Stock Options
    
    
    
    
    
    
    28,172
    
    
    
    (0.01
    )Diluted earnings per share
    
    $
    4,202,373
    
    
    
    3,251,655
    
    
    $
    1.29


11



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##### 



Item 2.  Managements Discussion and Analysis of Results of Operations and Financial Condition

The following analysis compares WGNB Corps results of operations for the
quarter and nine month periods ended September 30, 2003 and 2002 and reviews
the important factors affecting WGNB Corp.s financial condition at September
30, 2003 compared to December 31, 2002. These comments should be read in
conjunction with the Companys consolidated financial statements and the
accompanying notes appearing elsewhere in this report.

Forward Looking Statements

This Report may contain certain forward-looking statements including
statements concerning plans, objectives, future events or performance and
assumptions and other statements that are not statements of historical fact.
The Company cautions readers that the following important factors, among
others, could cause the Companys actual results to differ materially from the
forward-looking statements contained in this Report: (i) the effect of changes
in laws and regulations, including federal and state banking laws and
regulations, with which the Company and its subsidiaries must comply, and the
associated costs of compliance with such laws and regulations either currently
or in the future as applicable; (ii) the effect of changes in accounting
policies and practices, as may be adopted by the regulatory agencies as well as
by the Financial Accounting Standards Board, or of changes in the Companys
organization, compensation and benefit plans; (iii) the effect on the Companys
competitive position within its market area of the increasing consolidation
within the banking and financial services industries, including the increased
competition from larger regional and out-of-state banking organizations as well
as non-bank providers of various financial services; (iv) the effect of changes
in interest rates; and (v) the effect of changes in the business cycle and
downturns in local, regional or national economies. The Company cautions that
the foregoing list of important factors is not exclusive.

Results of Operations

Overview

Net earnings for the nine months ended September 30, 2003 were $4.3
million, an increase of $106 thousand, or 2.5 percent, compared to the nine
months ended September 30, 2002. The net earnings per diluted common share was
$1.29, which was flat when comparing the same two periods due primarily to the
effect of the Companys Common Stock offering which occurred in April 2002.
Net earnings for the third quarter ended September 30, 2003 were $1.44 million
compared to $1.67 million for the third quarter of 2002, a decrease of 13.6
percent. During the third quarter of 2002, the Bank recognized a gain in the
amount of $252,950 on the settlement of an interest rate swap contract.
Excluding the tax effected gain on the swap, core earnings for the third
quarter of 2002 would have been $1.50 million.

The Bank has experienced increased mortgage origination fee income through
the third quarter due to the refinancing activity which took place during the
first seven months of 2003. However, mortgage refinancing declined
considerably in August and September and is expected to be reduced even further
for the remainder of 2003. Other non-interest income (exclusive of the gain on
the interest rate swap and gain on securities in 2002) increased by $533
thousand, or 14.6 percent, comparing the nine months ended 2003 with the first
nine months of 2002. Total non-interest expense increased $672 thousand, or
7.5 percent, comparing the same period.

Net Interest Income

The Companys year-to-date third quarter 2003 net interest margin exceeded
that of the same period in 2002 by $355 thousand, or 3.0 percent. The
year-to-date average yield on earning assets declined 76 basis points, from
7.48 percent as of September 30, 2002 to 6.72 percent as of September 30, 2003.
The year-to-date average cost of funds decreased 63 basis points during the
same time period, from 2.88 percent to 2.25 percent. The Banks current cost
of funds as of September 30, 2003 was 2.09 percent compared to 2.64 percent as
of the same time period in 2002. The weighted average cost of interest-bearing
transaction account costs was 0.50 percent as of September 30, 2003 compared to
0.95 percent as of September 30, 2002. The weighted average cost of all
certificates of deposit as of September 30, 2003 was 3.01 percent compared to
3.87 percent for the same period in 2002. The above reductions were the result
of Managements efforts to decrease the Banks cost of funds while maintaining
proper liquidity levels. In addition, the Bank has borrowings with the Federal
Home Loan Bank in the amount of $45 million with a weighted average cost of
5.43 percent. Those borrowings have varying call dates but, given the current
low rate environment, those notes will likely not be called prior to maturity.

The year-to-date average yield on loans declined 78 basis points from 7.48
percent as of September 30, 2002 compared to 6.70 percent as of September 30,
2003. The yield on the Banks bond portfolio exclusive of federal funds

12



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maintained an average of 6.01 percent through September 30, 2003, which
represents a decline of 19 basis points compared to its average of 6.20 percent
through September 30, 2002. During the same nine-month periods, the federal
funds average yields were 1.12 percent and 1.68 percent, respectively, for 2003
and 2002. As rates remain low, the prospect of lower loan and investment
portfolio yields is probable as some of the Banks higher yielding loans
re-price at lower current market rates.

Comparing the third quarter ended September 30, 2003 with that of 2002,
net interest income increased $79 thousand, or 2.0 percent. The nine month
rate trends discussed above are similarly applicable to a comparison of the two
quarterly periods.

Non-Interest Income and Expense

Non-interest income for the first nine months of 2003 increased $271
thousand, or 6.9 percent, when compared to the first nine months of 2002.
Service charges on deposit accounts increased $373 thousand, or 16.1 percent,
through the third quarter of 2003 compared to the nine month year-to-date
amounts for 2002. This increase was due primarily to increased income from
non-sufficient funds charges generated by a higher volume of accounts.

The decline in market interest rates has been beneficial to the Banks
ability to generate mortgage loan origination fees. However, refinancing
activity is down sharply in the third quarter of 2003. Mortgage loan
origination fees for the first nine months of 2003 have outpaced the same
period in 2002 by $58 thousand, or 8.3 percent. However, recent increases in
long-term mortgage rates have had an adverse effect on mortgage fee income.
Comparing the three months ended September 30, 2003 and 2002, mortgage fees in
2003 trailed those in 2002 by $28 thousand, or 10.4 percent. Management
expects that mortgage fee income for the remainder of 2003 will return to
pre-refinance levels.

Miscellaneous income increased by $102 thousand, or 16.1 percent, when
comparing the first nine months of 2003 with that of 2002. Included in
miscellaneous income for the nine months ended September 30, 2003 is a gain of
$100 thousand on the sale of the Banks exclusive right to an ATM at the
commercial development surrounding its future permanent Mirror Lake branch site
which took place in the second quarter of 2003.

As previously discussed, the Bank realized a gain on the settlement of an
interest rate swap position in the third quarter of 2002 in the amount of $253
thousand. The Bank has not entered into any derivative arrangements since 2001
and there is presently no hedge position in place.

Non-interest income for the third quarter ended September 30, 2003
(exclusive of the gain on the swap) increased $42 thousand, or 3.2 percent,
when compared to the third quarter ended September 30, 2002. The increase was
attributable to service charges on deposit accounts increasing $146 thousand,
or 17.9 percent, mortgage origination fee income decreasing $28 thousand, or
10.4 percent, and miscellaneous income decreasing $75 thousand, or 34.0
percent. The decrease in miscellaneous income is primarily due to write-downs
in foreclosed property and repossessed assets.

Non-interest expense increased $672 thousand, or 7.5 percent, for the
three quarters ended September 30, 2003 compared to the same period in 2002.
Salaries and employee benefits accounted for more than half of the increase
which was $383 thousand. This increase is primarily due to increased
commissions for mortgage originators, annual salary increases, increased group
insurance costs and increased profit sharing accruals. The Bank has increased
its full time equivalent employee count from 137 in September of 2002 to 146 in
September of 2003. Occupancy expenses for year-to-date 2003 increased $89
thousand, or 7.1 percent, from that period in 2002. This increase is primarily
attributable to increased depreciation expense related to the renovation of the
Banks main office and operations center and upgrades to its Villa Rica and
First Tuesday Mall branches. Other operating expenses in this period increased
$201 thousand, or 8.5 percent. The increase in other operating expenses is
attributable to legal and other professional fees, including those related to
compliance costs associated with corporate governance measures implemented as a
result of the Sarbanes-Oxley Act of 2002 and the Companys Securities and
Exchange Commission filings.

Comparing non-interest expense quarter to quarter, similar factors hold
true. Total non-interest expense increased $246 thousand, or 8.2 percent,
comparing the third quarters ended 2003 and 2002. Salaries and benefits
accounted for $143 thousand of the increase and occupancy expense, specifically
depreciation expense, accounted for $76 thousand of the increase.

Income Taxes

Income tax expense for the nine months ended September 30, 2003 was $2.01
million compared to $2.17 million for the same period in 2002. The effective
tax rate for the period ended September 30, 2003 was 32 percent compared to 34

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percent for the same period in 2002. The reduced marginal rate is due to
the purchase of tax credits and reduced state taxes related to interest income
from investment securities.

Provision and Allowance for Loan Losses

The adequacy of the allowance for loan losses is determined through
managements informed judgment concerning the amount of risk inherent in the
Companys loan portfolio. This judgment is based on such factors as the change
in levels of non-performing and past due loans, historical loan loss
experience, borrowers financial condition, concentration of loans to specific
borrowers and industries, estimated values of underlying collateral, and
current and prospective economic conditions. The allowance for loan losses at
September 30, 2003 was $3.6 million, or 1.23 percent, of total loans compared
to $3.8 million, or 1.38 percent, of total loans at December 31, 2002.
Management believes that the allowance for loan losses is adequate to absorb
possible loss in the loan portfolio.

Non-Performing Assets and Past Due Loans

Non-performing assets, comprised of real estate owned, non-accrual loans
and loans for which payments are more than 90 days past due, totaled $2.4
million at September 30, 2003, compared to $1.8 million at September 30, 2002.
Non-performing assets expressed as a percentage of total loans and real estate
owned at September 30, 2003 and September 30, 2002 were 0.8 percent and 0.6
percent, respectively.

The Company has an independent loan review function. All loans are placed
in loan grade categories, which are consistent with those used by the Banks
regulators. All loans are constantly monitored by the loan officer and the
loan review function for credit quality, consistency and accuracy. Through
this grading process, the Bank assures the timely recognition of credit risks.
In general, as credit risk increases, the level of the allowance for loan loss
will also increase.

A formal allowance for loan loss adequacy test is performed at each month
end. Specific amounts of loss are estimated on problem loans and historical
loss percentages are applied to the balance of the portfolio using certain
portfolio stratifications. Additionally, the evaluation takes into
consideration such factors as changes in the nature and volume of the loan
portfolio, current economic conditions, regulatory examination results, and the
existence of loan concentrations.

Managements judgment in determining the adequacy of the allowance is
based on evaluations of the collectability of loans. These evaluations take
into consideration such factors as changes in the nature and volume of the loan
portfolio, current economic conditions that may affect the borrowers ability
to pay, overall portfolio quality, and review of specific problem loans. In
determining the adequacy of the allowance for loan losses, management uses a
loan grading system that rates loans in eight different categories. Grades
five though eight, which represent criticized or classified loans, are assigned
allocations of loss based on managements estimate of potential loss that is
generally based on historical losses and/or collateral deficiencies. Loans
graded one through four are stratified by type and allocated loss ranges based
on historical loss experience for the strata. The combination of these results
are compared monthly to the recorded allowance for loan losses and material
differences are adjusted by increasing or decreasing the provision for loan
losses. Loans deemed to be impaired are evaluated individually to measure the
probable loss, if any, in the credit. Management uses an internal loan
reviewer who is independent of the lending function to challenge and
corroborate the loan grading system and provide additional analysis in
determining the adequacy of the allowance for loan losses and the future
provisions for estimated loan losses.

Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions and a change in the borrowers ability to repay. In addition,
regulators, as an integral part of their examination process, periodically
review the Companys allowance for loan losses. Such regulators may require
the Company to recognize additions to the allowance based on their judgments of
information available to them at the time of their examination. Management of
the Company realizes the importance of maintaining an adequate allowance for
loan losses. Through a professional loan review function and effective loan
officer identification program, management is recognizing weaknesses in the
loan portfolio in a timely manner. Early identification of deteriorating
credit attributes allows management to take a proactive role in documenting an
established plan to enhance the Companys position and minimize the potential
for loss.

Through the problem loan identification program outlined above, management
is able to identify those loans that exhibit weakness and classify them on a
classified and criticized loan list. The Companys migration analysis assigns
historical loss amounts to pools of loans according to classifications of risk
ratings to calculate a general allowance to the overall portfolio. In cases
where significant weaknesses exist in a specific loan, a specific reserve is
assigned to such loans in addition to the general allowance. The Company also
evaluates the risks associated with concentrations in credit. If it is
necessary to assign an allowance

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related to concentrations of credit, the Company adds a specific reserve
related to such risks. Management is unaware of any known trends, events or
uncertainties that will have, or that are reasonably likely to have, a material
effect on liquidity, capital resources or operations.

Financial Condition

Overview

Total assets were $379 million at September 30, 2003, a decrease of $5.8
million, or 1.5 percent, from December 31, 2002.

Assets and Funding

The balance sheet has shifted since December 31, 2002. At September 30,
2003, earning assets totaled $354 million which represents a decrease of $4.0
million from December 31, 2002. As a percentage of interest earning assets,
loans increased to 83 percent (compared to 76 percent at December 30, 2002),
investment securities remained constant at 16 percent, but federal funds
decreased to 1 percent at September 30, 2003 (compared to 9 percent at December
31, 2002). The primary reason for the change in the mix is a decrease in
federal funds of $25.7 million resulting from an increase in total loans of
$19.4 million and a reduction in total deposits of $9.4 million.

At September 30, 2003, interest-bearing liabilities decreased $10.7
million compared to December 31, 2002. Non-interest-bearing deposits increased
$1.3 million for the nine months ended 2003 while certificates of deposit
decreased by $4.8 million. As of December 31, 2002, transaction and savings
accounts constituted 57 percent and certificates of deposits accounted for 43
percent of the Banks total deposits. Those same percentages hold true for the
period ended September 30, 2003. At September 30, 2003, deposits represented
85 percent of interest-bearing liabilities and other borrowings, including
Federal Home Loan Bank advances, represented 15 percent of the total.

Liquidity and Capital Resources

Net cash provided by operating activities totaled $6.4 million for the
nine months ended September 30, 2003. Net cash used by investing activities
totaled $22.1 million and consisted primarily of a $20.3 million increase in
loans outstanding. The increase in loans was funded by existing cash on the
balance sheet. Net cash used by financing activities was $11.1 million which
was a result of a decrease in total deposits of $9.3 million and dividends paid
totaling $1.6 million. The net decrease in cash and cash equivalents as of
September 30, 2003 was $26.7 million.

Total stockholders equity at September 30, 2003 was 10.83 percent of
total assets compared to 10.00 percent at December 31, 2002. The increase in
the capital percentage is attributed to the Companys increase in retained
earnings of $2.7 million and the $5.8 million decrease in total assets when
compared to December 31, 2002.

At September 30, 2003, WGNB Corp. was in compliance with various
regulatory capital requirements administered by federal and state banking
agencies. The following is a table representing WGNB Corp.s consolidated
Tier-1, tangible capital, and risk-based capital.

September 30, 2003Actual
    
    
    
    
    
    Required
    
    
    
    
    
    ExcessAmount
    
    %
    
    Amount
    
    %
    
    Amount
    
    %Total capital (to risk-weighted assets)
    
    $
    43,389
    
    
    
    14.56
    %
    
    $
    23,846
    
    
    
    8.00
    %
    
    $
    19,543
    
    
    
    6.56
    %Tier 1 capital (to risk-weighted assets)
    
    
    39,801
    
    
    
    13.35
    %
    
    
    11,923
    
    
    
    4.00
    %
    
    
    27,878
    
    
    
    9.35
    %Tier 1 capital (to average
assets)
    
    
    39,801
    
    
    
    10.42
    %
    
    
    15,272
    
    
    
    4.00
    %
    
    
    24,529
    
    
    
    6.42
    %


Off Balance Sheet Risks

Through the operations of the Bank, the Company has made contractual
commitments to extend credit in the ordinary course of its business activities.
These commitments are legally binding agreements to lend money to the Banks
customers at

15



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predetermined interest rates for a specified period of time. At September 30,
2003, the Bank had issued commitments to extend credit of $54 million through
various types of commercial lending arrangements and additional commitments
through standby letters of credit of $2.1 million. The Company evaluates each
customers credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based
on its credit evaluation of the borrower. Collateral varies, but may include
accounts receivable, inventory, property, plant and equipment, commercial and
residential real estate. The Company manages the credit risk on these
commitments by subjecting them to normal underwriting and risk management
processes.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss from adverse changes in market prices and
interest rates. The Companys market risk arises primarily from interest rate
risk inherent in its lending and deposit-taking activities. The Company has
little or no risk related to trading accounts, commodities and foreign
exchanges.

Interest rate risk, which encompasses price risk, is the exposure of a
banking organizations financial condition and earnings ability to adverse
movements in interest rates. The measurement of market risk associated with
financial instruments is meaningful only when all related and offsetting on-
and off-balance sheet transactions are aggregated, and resulting net positions
are identified. Disclosures about the fair value of financial instruments as
of December 31, 2002, which reflected changes in market prices and rates, can
be found in the Companys Annual Report to Stockholders on Form 10-K for the
year ended December 31, 2002 under section entitled Managements Discussion
and Analysis of Financial Condition and Results of Operation  Asset/Liability
Management.

Management actively monitors and manages the Companys interest rate risk
exposure. The primary objective in managing interest rate risk is to limit,
within established guidelines, the adverse impact of changes in interest rates
on the Companys net interest income and capital, while adjusting the Companys
asset-liability structure to control interest rate risk. However, a sudden and
substantial increase in interest rates may not have proportional impact on
interest sensitive assets and liabilities. Management believes that there have
been no significant changes in the Companys market risk exposure since
December 31, 2002.

Item 4. Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the Exchange Act)) designed to ensure that information required to
be disclosed in the reports that the Company files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange
Commission. Based upon their evaluation of those disclosure controls and
procedures, the chief executive and chief financial officers of the Company
concluded that, as of the end of the period covered by this report, the
Companys disclosure controls and procedures were adequate. In connection with
such evaluation, no change in the Companys internal control over financial
reporting occurred during the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the Companys internal
control over financial reporting.

Part II  Other Information

Item 1. Legal Proceedings

There are no material, pending legal proceedings to which the Company or
any of its subsidiaries is a party or of which any of their property is the
subject.

Item 2. Changes in Securities and Use of Proceeds

(a) Not applicable.

(b) Not applicable.

(c) Not applicable.

(d) The Company has previously reported the completion of a registered
offering pursuant to which it sold 200,000

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shares of its Common Stock at a purchase price of $24.00 per share. The
net proceeds from the offering (which was completed in April 2002) of
$4,765,654 have not yet been used by the Company, but continue to be invested
in a corporate bond (having a book value of $1,133,009 as of September 30,
2003) and in federal funds.

During the third quarter of 2003, the Company declared and paid quarterly
cash dividends amounting to 17 cents per share. The declaration of dividends
is within the discretion of the Board of Directors and will depend, among other
things, upon business conditions, earnings, the financial condition of the Bank
and the Company, and regulatory requirements.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

(a) The following documents are filed as part of this Report:

3.1
    
    
    Amended and Restated Articles of Incorporation (Incorporated by
reference to Exhibit 3.1 to the Companys Registration Statement on
Form 10-SB filed June 14, 2000 (the Form 10-SB)3.2
    
    
    Amended and Restated Bylaws (Incorporated by reference to
Exhibit 3.2 to the Form 10-SB)4.1
    
    
    See exhibits 3.1 and 3.2 for provisions of Companys Articles
of Incorporation and Bylaws Defining the Rights of Shareholders4.2
    
    
    Specimen certificate representing shares of Common Stock
(Incorporated by reference to Exhibit 4.2 to the Form 10-SB)4.3
    
    
    Rights Agreement dated as of February 12, 1997 between the
Company and SunTrust Bank, Atlanta (Incorporated by reference to
Exhibit 4.3 to the Form 10-SB)31.1
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002**
    
    
    32.1
    
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
    
    
    32.2
    
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002




---

|** |  | Pursuant to Commission Release No. 33-8238, this certification will be
treated as accompanying this Quarterly Report on Form 10-Q and not filed as
part of such report for purposes of Section 18 of the Exchange Act, or
otherwise subject to the liability of Section 18 of the Exchange Act and this
certification will not be deemed to be incorporated by reference into any
filing under the Securities Act of 1933, as amended, or the Exchange Act,
except to the extent that the registrant specifically incorporates it by
reference.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(b) Reports on Form 8-K

On July 7, 2003, the Company filed a current report on Form 8-K to
disclose under Item 12 the issuance of its press release announcing the
Companys results of operations for the quarterly period ended June 30, 2003.

17



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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of
1934, the Company has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Dated: November 7, 2003



WGNB
CORP.By:
    
    /s/ L. Leighton AlstonL. Leighton Alston
President and CEOBy:
    
    /s/ Steven J. HaackSteven J. Haack
Treasurer
Principal Financial Officer


18